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Trouble looms in power sector over activation of PPA

By Kingsley Jeremiah, Abuja 
27 June 2022   |   4:15 am
Concerns emerged, yesterday, as the Nigerian Electricity Regulatory Commission (NERC) moves to enforce Power Purchase Agreement (PPA) between Nigerian Bulk Electricity Trading Company Plc ...

Electricity

• GenCos insist 5,000MW order by NERC ‘an APC promise’, not realistic

Concerns emerged, yesterday, as the Nigerian Electricity Regulatory Commission (NERC) moves to enforce Power Purchase Agreement (PPA) between Nigerian Bulk Electricity Trading Company Plc (NBET) and players in the power sector. The power generation companies have also insisted that raising electricity generation to 5,000 megawatts as ordered by NERC may remain a mirage. 

A copy of the letter obtained by The Guardian, yesterday, which was sent to one of the Generation Companies (GenCos) by NERC’s Secretary, Ada Ozoemena, showed that the PPA would be signed tomorrow (Tuesday).

The PPA creates a long-term contract with conditions for the purchase of electricity. NERC, in the invitation letter, wrote: “Please find attached Activation Agreement to be executed between thermal GenCos and NBET for the activation of contracts in Nigeria Electricity Supply Industry (NESI) and note that an Activation Agreement Execution Event at which the MDs personal presence is required shall hold as follows: Date: 28 June 2022 at 9:00a.m. prompt.”

With power supply through the national grid showing no sign of improving, the Federal Government’s plan to ditch the ‘best endeavour’ approach for a contract-based Nigerian Electricity Supply Market may not yield the 5,000MW target, the power generation companies have said, adding that for the 5,000MW supply to happen, the government has to guarantee gas supply to the power plants and also pay up debts owed to them to facilitate the repairs of units in the power plants.

Most of the GenCos, who spoke with The Guardian, insisted that the development might remain a mirage, insisting that over N1.64 trillion debts is still being owed them under the previous agreement. 

The development, according to them, may further worsen existing electricity situation in the country, adding that the PPA will not function without compliance to interrelated agreements as well as gas-related issues.

Recall that after privatisation of the power sector in 2013, the six legacy GenCos were given template PPA with the mind that they would renegotiate and sign PPA as soon as NBET gets on stream but the agency was not in place until 2015. 

There were issues with letters of credit as the DisCos had gone to court, delaying the PPA through an injunction before the contract was finally signed in 2016. At that, the power firms said guarantee for 100 per cent was never meant even as the trustee, United Capital, could not release fund to them.

The Association of Power Generation Companies (APGC) said GenCos’ investors had spent heavily in generation assets, going as far as obtaining loans to fulfill their obligations on the assurance of 100 per cent payment of monthly market invoice upon fulfillment of their obligations. 

While mismatch in the previous PPA had cost the Federal Government over N701 billion in payment to gas suppliers, the companies noted that rest of the debt has been on their account, adding that gas suppliers have already appointed debt collectors who are hounding them daily.

It noted that the previous PPA had stipulated that where NBET fails in the obligation, the company was obligated to pay interest on any outstanding amounts.

“Again, it was further agreed under clause 13.4.1 of the Agreement that: ‘for each billing period during the delivery term, seller shall invoice buyer for the capacity payment, energy payment, take or pay payment, and start-up cost payable to seller for such billing period upon receipt of the final settlement statement from the market operator following the applicable billing period.’ The payment shown in such invoice as due to seller shall be paid by buyer on or before the 15th business day following the day the invoice is delivered to sector whether buyer disputes the invoiced amount.”

It added in a document obtained by The Guardian that security cover were not met even after the transfer of assets to the new investors due to NBET’s inability to meet them.

“The non-availability of these requirements resulted in the non-effectiveness of the PPA of the legacy GenCos. So, what is new in the current activation?” it noted.

With persistent grid collapse, the power investors also fear that the development remained elusive on how Transmission Company of Nigeria (TCN) would guarantee wheeling the GenCos capacity, adding that in an event of failure, there won’t be an automated system to check.

The Head, Corporate Communications, NBET, Henrietta Ighomrore, had earlier insisted that the GenCos were paid as at when due, adding that only five power generation companies with active Gas Purchase Agreement were paid for unused capacity.

“To put in context, NBET makes payment to GenCos as and when due, and has never defaulted on any payment cycle till date. The percentage payment made to GenCos has continually been on the increase, with the N701.9 billion PAF payment, which ensured a minimum of 80 per cent of GenCos invoices for 2018 and 2019, as well as the second PAF of N600 billion that ensured an average of 95 per cent payment of GenCos invoices for 2020.

“Also with the current Power Sector Recovery Operation (PSRO) programme that caters for tariff shortfall, GenCos have continued to receive over 90 per cent payment of their generating invoices for the 2021 payment cycle,” Ighomrore said.

Yesterday, only 20 plants were generating 3,350MW; Azura-Edo (446MW) and Delta Power topped the chat with 402MW.

The GenCos noted that the sector could only become a market when fuel supply, generation, transmission, system operation and distribution are strategically, technically, commercially and financially in alignment.

“GenCos are dead horse. Beat them till tomorrow, they can’t do much. Grid inefficiency has destroyed all the machines and without money to carry out the routine maintenance, status quo remains. This is in addition to huge and mounting debts from 2015 till date,” they said.

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